Wealth and income inequality are moving in the wrong direction, and have been for some time. The highest-income individuals are controlling more and more wealth as lower-income people find their piece of the pie shrinking. This might be most evident in wages, as high-earners have seen pay increases across the board while low-paying jobs suffered through decades of stagnation.
But what about wealth created through an asset—real estate, for instance?
A new study by the National Association of REALTORS® (NAR) is revealing how much the creep of income inequality has affected homeowners—specifically lower-earners, who lost 8.4% of their housing wealth between 2010 and 2020, while high-income earners gained a staggering 14.6% in the same time period.
Middle-income families lost 5% of their housing wealth, though those losses were distributed unevenly as a handful of cities—largely concentrated in the South and Midwest—saw significant gains for these earners and their homes. At the same time, major coastal metros saw precipitous declines both in wealth and raw numbers of middle-class homeowners, with Chicago losing $3.4 billion from that demographic, and New York City experiencing an exodus of over 100,000 middle-income earners overall.
Middle-income households have also lost the most ground as far as homeownership rates since the Great Recession, the study found, shrinking 8.4%. Low-income households lost about 2% and upper income lost 4% in the same time period.
The report identifies both short and long-term focuses to address housing wealth equity, including zoning reform and accessible lending for affordable housing in the long term, and addressing supply chain and labor issues along with converting commercial space for housing in the short term.
Creating more entry-level housing is an inherent challenge for builders and an economic conundrum, according to California Association of REALTORS® senior economist, Jordan Levine, who told RISMedia late last year that availability of this kind of housing likely will depend on freeing up existing stock.
“We need to do a better job of sort of checking the dots between housing supply, housing affordability, things like homeownership and even broader things like our economic growth,” Levine said. “Which are made more challenging by having a housing supply that’s becoming less affordable in general.”
Leslie Cato, a team leader for Keller Williams in the highly sought-after New Jersey suburbs in Middlesex County, also said late last year that restrictive zoning and a lack of affordable homes had pushed that region close to a breaking point. Buyers are being pushed further and further away from their preferred locations, she says, just because there is nothing available even for relatively high earners.
“People are willing to move further,” she noted. “I think they’re willing to go rural, go even further out than before.”
While the market has lost middle-class homeownership opportunities overall, the NAR report identified a handful of metros that gained significant numbers of entry-level homeowners, who also added to their wealth.
Phoenix, Arizona added more than 103,000 new middle-class homeowners between 2010 and 2020, increasing the overall housing wealth of that demographic by almost $80 billion as property values have gone up an average of $108,968.
Other cities with big middle-class surges in wealth and homebuying include Dallas-Ft. Worth, Texas (55,000 new homes, $75 billion in wealth); Denver, Colorado (26,000 new homes, $64.1 billion in wealth) and Riverside, California, a Los Angeles suburb (20,000 new homes, $62.9 billion in wealth).
“Middle-income households in these growing markets have seen phenomenal gains in price appreciation,” said NAR chief economist, Lawrence Yun, in a statement. “Given the rapid migration and robust job growth in these areas, I expect these markets to continue to see impressive price gains.”
Of the cities that shed middle-class households, many still saw significant price appreciation among existing homeowners. Though Los Angeles, California lost almost 74,000 middle-class homeowners between 2010 and 2020, those that remained added an aggregate $164 billion to their wealth as home prices shot up.
Similarly, other big West and Northeastern metros lost households but gained significant wealth, with Boston, Massachusetts (losing 28,000 households, gaining $43.3 billion in wealth) and Detroit, Michigan (down 25,000 households, up $29.4 billion in wealth).
“These escalating home values were no doubt beneficial to homeowners and home sellers,” Yun noted. “However, as these markets flourish, middle-income wage earners face increasingly difficult affordability issues and are regrettably being priced out of the home-buying process.”
A handful of these metros lost wealth in the middle-income area even amid a broad surge in home appreciation, with Chicago Illinois cutting $3.4 billion and Hartford, Connecticut dropping $2.9 billion from the value of middle-class homes.
“Homeownership is rewarding in so many ways and can serve as a vital component in achieving financial stability,” said NAR President Leslie Rouda Smith in a statement. “Now, we must focus on increasing access to safe, affordable housing and ensuring that more people can begin to amass and pass on the gains from homeownership.”
For more information, visit https://nar.realtor.
Jesse Williams is RISMedia’s associate online editor. Email him with your real estate news ideas, email@example.com.